The rupee recouped most of its losses against the US currency due to dollar sales by exporters and long liquidation by banks ahead of the US Federal Open Market Committee's decision on interest rates later today.
"The rupee had weakened to 40.64 in late trade after short covering prompted some banks to sell dollars for exporters," said a dealer at a state-run bank.
The Indian unit finally ended at 40.50 to a dollar compared with 40.48 on Tuesday.
Banks also squared off their long-dollar positions. The US Federal Reserve is expected to slash the interest rates by a quarter percentage point to 2 per cent.
Call rates: Lower close
The call rates closed marginally lower today because banks preferred to borrow from the CBLO market where the rate declined to as low as 4.50 per cent, dealers said.
The call money market will be closed on Thursday for World Labour Day.
The two-day call rate ended at 6.05-6.10 per cent, down from Tuesday's close of 6.15-6.25 per cent for one-day loans.
"Liquidity was adequate in the call market. But banks preferred to borrow from CBLOs to take advantage of the lower rate there," said a dealer with a state-run bank. As a result of this, lenders had to cut rates to some extent.
The total traded volumes in the CBLO market were Rs 553.61 compared with just Rs 168.36 billion in the call market.
CBLOs were traded at weighted average rates of 5.80 per cent compared with 6.08 per cent on Tuesday.
The Reserve Bank of India today received bids worth Rs 43 billion for reverse repo tender compared with Rs 52 billion on Tuesday.
G-sec: Firmness abounds
The Government bond prices extended their gains to end firm for the second consecutive day today. The investors continued to make purchases, drawing comfort from the Reserve Bank of India's decision to hold the key interest rates steady in the monetary and credit policy for 2008-09, dealers said.
The most actively traded 8.24 per cent, 2018 paper ended at Rs 102.21 or 7.9151 per cent yield to maturity, compared with Rs 102.04 or 7.9396 per cent yield on Tuesday.
